A sliver of hope from China

Amid all the gloom and doom of sharply tightening monetary policy (falling M*V growth expectations) worldwide, I found this sliver of hope from Reuters:

CHENGDU, China (Reuters) – Chinese Vice-Premier Wang Qishan warned on Monday the global economy is in a grim state and the visiting U.S. commerce secretary said China would spend $1.7 trillion on strategic sectors as Beijing seeks to bolster waning growth.

Wang said an “unbalanced recovery” may be the best option to deal with what he had described on Saturday as a certain chronic global recession, suggesting Beijing would bolster its own economy before it worries about global imbalances at the heart of trade tensions with Washington.

“An unbalanced recovery would be better than a balanced recession,” he said at the annual U.S.-China Joint Commission on Commerce and Trade, or JCCT, in the southwest Chinese city of Chengdu.

.   .   .

“Global economic conditions remain grim, and ensuring economic recovery is the overriding priority,” said Wang, the top official steering China’s financial and trade policy, at the start of the second day of talks with the Americans.

His comments suggested that Beijing should attend to bolstering China’s own growth before it worried about global imbalances. In other words, a strong Chinese economy that brings a continued trade deficit with the United States would be better for the world economy than a slowdown in China itself.

Yes, unbalanced growth is better than a balanced recession.  Partly because a recession creates even more “imbalances.”   If only the Fed and ECB saw things that way.



13 Responses to “A sliver of hope from China”

  1. Gravatar of Rajat Rajat
    23. November 2011 at 06:08

    I don’t understand that report – won’t stronger growth in China attenuate America’s trade deficit with China?

  2. Gravatar of Greg Ransom Greg Ransom
    23. November 2011 at 06:41

    Artificial “Unbalanced” growth is unsustainable & inevitable ends in a discoordination bust.

    An economists who can’t understand the econ 101 of this is not much of an economist.

    Scott wrote,

    “unbalanced growth is better than a balanced recession.”

    And the notion of a “balanced recession” is economically illiterate.

  3. Gravatar of Becky Hargrove Becky Hargrove
    23. November 2011 at 07:14

    Hayek did not have to think in quite the same global terms.

  4. Gravatar of Peter N Peter N
    23. November 2011 at 07:44

    Question for the expert – isn’t Germany’s behavior in the last 10 years rather like that of France in 1928-1930. They were forcing their trading partners either to accept deflation or borrow. Excessive borrowing is a way to debase your currency when you don’t have one.

    National Euro debt is a money equivalent. When you issue so much of it that you threaten belief in the equivalence, you contract the effective money supply by loss of that equivalence. This is like debasing the coinage resulting in people refusing to treat it as money.

    Banks use Euro debt as tier 1 capital. Reducing the value of it in Euros makes the banks under-capitalized. The banks are in a situation like the US banks in 1932 – shortage of capital (and deteriorating asset quality), inability to find funds to repair the situation due to a flight to quality and loss of liquidity leading to insolvency.

    The parallels seem to be quite close. but if the 1932 process caused tight money, then the same should be true of the 2011 process.

  5. Gravatar of Joe2 Joe2
    23. November 2011 at 07:48

    Dunno if Germany is France of the 30’s Peter. However every single Bond in the Euro zone is getting clocked at the moment including Germany’s.

    The ECB/Germany are basically creating a crisis.

  6. Gravatar of Benjamin Cole Benjamin Cole
    23. November 2011 at 08:12

    Wow! Now that is leadership.

    I hope someday the Chinese evolve into a democracy with free speech. But they have economic leadership in the meantime.

  7. Gravatar of ssumner ssumner
    23. November 2011 at 08:34

    Rajat, Yes, that’s the point. But a stronger yuan would slow Chinese growth, at a time when it is already slowing rapidly.

    Greg, You said;

    “And the notion of a “balanced recession” is economically illiterate.”

    I agree, as the labor market would be out of equilibrium.

    Peter, Yes, that seems right to me. But I would focus on too little base money (or too low an NGDP target) as the real problem. With a more expansionary monetary policy the fiscal situation would be much better.

    Joe2, A few weeks ago I mentioned that it might come back and bite Germany.

    Ben, At least the Chinese are pragmatists, not obsessed with out-of-date monetary ideologies that are still fighting the battle of the 1970s.

  8. Gravatar of Benjamin Cole Benjamin Cole
    23. November 2011 at 09:10

    OT but oooof. Would you lend to a sovereign that will not print more money to pay off debts?

    “Disastrous” bond sale shakes confidence in Germany

    By Stephen Brown and Noah Barkin
    BERLIN | Wed Nov 23, 2011 10:52am EST
    (Reuters) – A “disastrous” German bond sale on Wednesday sparked fears that Europe’s debt crisis was even starting to threaten Berlin, with the leaders of the euro zone’s two biggest economies still firmly at odds over a longer-term structural solution.

  9. Gravatar of Peter N Peter N
    23. November 2011 at 10:52


    Germany’s banks are in much worse shape than Italy’s. Germany has a fairly large national debt (from rebuilding the east). though their budget is in surplus and they’re paying down their debt. Lately, however, they’ve been porking up the budget.

    It has occurred to people that

    Germany’s foreign trade will suffer if its trading partners are all belly up.

    Germany’s foreign trade will suffer if its trading partners problems are solved, if the solution is Germany’s not running a surplus.

    A great deal of damage has already been done. If the ECB stepped in tomorrow and bought a trillion Euros in bonds, Germany would still take a GDP hit and fall into deficit.

    If the ECB buys 1 trillion Euros of bonds, Germany will indirectly have added their share of the buy to its national debt.

    You can make a very good case that Italy is in better financial shape than Germany. Its national debt is NOT at a historic high; it has a large underground economy and thus a lot of hidden GDP and untapped resources; and its banks are in better shape. The difference is mostly investor sentiment and speculative opportunity. Italy is just an easier target than Germany.

    It’s always dangerous to believe your own propaganda, and governments shouldn’t be surprised if their citizens believe something they’ve been repeatedly told that has become proved inconvenient.

    Germany isn’t an industrious ant surrounded by lazy, shiftless, wastrel grasshoppers. For instance, its people appear to work fewer hours per year than its neighbors:

    Germany 1419
    Italy 1778
    Spain 1663
    Portugal 1714
    Ireland 1664
    Greece 2109
    Sweden 1624
    Switzerland 1640
    US 1778
    Korea 2193
    Japan 1733

    These are OECD statistics, for what it’s worth.

    What Germany has is a better educated, better trained work force and better governance.

    Germany profited handsomely from its surplus under the Euro. It used the money to rebuild the east – a trifling 1.6 trillion Euros. To a large extent, the economies of its trading partners are what Germany made them to be.

  10. Gravatar of Jason Odegaard Jason Odegaard
    23. November 2011 at 11:43


    Should China be loosening their monetary policy rather than spending 1.7 trillion? Last I heard about China’s banking system they had been ratcheting up reserve requirements to try and restrain inflation.

  11. Gravatar of Carl Carl
    23. November 2011 at 14:20

    This is why the Chinese will beat us. As you said scott, they’re pragmatist who aren’t concerned with the petty ideologies that drive the inflation and budget hawks in the west.

  12. Gravatar of Tom Tom
    25. November 2011 at 07:35

    Greg, You said;

    “And the notion of a “balanced recession” is economically illiterate.”

    I agree, as the labor market would be out of equilibrium.

    To claim that a balanced [global] recession is better than an unbalanced [global] recovery seems ridiculous, to me.

    To miss the [global] in what Qishan had described on Saturday as a certain chronic global recession, seems very weak.

    Scott, do you really think that a balanced recession is better than an unbalanced recovery, globally? (If it depends on the definition, please explain the one you use to claim recession is better.)

  13. Gravatar of Scott Sumner Scott Sumner
    25. November 2011 at 09:20

    Ben, Thanks, I have a post on that.

    Jason, I suspect that was money they were planning to spend anyway–it’s all PR.

    Carl, Yes, but they have a long way to go.

    Tom, No, I argued just the opposite.

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